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Property prices sink: What’s in store for 2023

Home prices are expected to continue falling in the first few months of 2023.

A composite image of people standing an a crowded auction and an aerial view of Australian property.
The Aussie property market may be in for more price falls this year. (Source: AAP/Getty)

The Australian property market finished the year on a weaker note, with values down around 5.3 per cent for the year after peaking in the first half of 2022.

This was the first time since 2018 that the property market fell overall and marked the largest decline since 2008, when values fell 6.4 per cent amid the Global Financial Crisis (GFC), according to CoreLogic.

Prices fell, thanks in no small part to the Reserve Bank of Australia (RBA) starting aggressive interest rate hikes in May 2022.

Annual value falls were the most significant in Sydney (down 12.1 per cent) and Melbourne (down 8.1 per cent) where conditions peaked early in the year.

Hobart (down 6.9 per cent), the ACT (down 3.3 per cent), and Brisbane (down 1.1 per cent) also recorded an annual drop in housing values, while three capitals saw values rise over the year: Adelaide (up 10.1 per cent), Darwin (up 4.3 per cent), and Perth (up 3.6 per cent).

CoreLogic’s research director, Tim Lawless, said 2022 was a year of contrasts, with housing values mostly rising through the first four months of the year, but falling sharply as the RBA commenced the fastest rate-tightening cycle on record.

“Our daily index series saw national home values peak on May 7, shortly after the cash rate moved off emergency lows. Since then, CoreLogic’s national index has fallen 8.2 per cent, following a dramatic 28.9 per cent rise in values through the upswing,” Lawless said.

The most expensive housing markets led the downturn through 2022, with most capital city and broad ‘rest-of-state’ regions recording weaker performances relative to the less expensive and broad middle of the market.

“The more expensive end of the market tends to lead the cycles, both through the upswing and the downturn,” Lawless said.

“Importantly, recent months have seen some cities recording less of a performance gap between the broad value-based cohorts. “Sydney is a good example, where upper-quartile house values actually fell at a slower pace than values across the lower quartile and broad middle of the market through the final quarter of the year.”

But, despite the downturn across many areas of the country, housing values generally remained well above pre-COVID levels.

“Melbourne is the only capital city where the current downwards trend is getting close to wiping out the entirety of COVID gains, with dwelling values only 1.5 per cent above March 2020 levels,” Lawless said.

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What’s to come in 2023?

Corelogic said the 2023 calendar year could also be one of contrasts, with the property market expected to see further falls in values in the early months, followed by a stablisation in home prices once interest rates peak.

“Initially, housing risks remain skewed to the downside. Interest rates or, more specifically, mortgage rates will be one of the main factors influencing housing market outcomes,” The CoreLogic House Price Index said.

“The timing and magnitude of a peak in the cash rate remains highly uncertain, however at least one more 25-basis-point lift seems all but certain.”

The RBA’s December hike took the cash rate to 3.1 per cent, pushing recent borrowers to the upper limit of serviceability they were assessed under.

An owner-occupier on a variable interest rate with a $750,000 mortgage is already paying around $1,135 more per month than they were before interest rates started to rise.

The more interest rates rise, the greater the downside risk posed by higher levels of mortgage stress and a lift in distressed sales.

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